One question I pose to small business owners: "Do you have a six-month cash flow projection?" If not, you may have a difficult time determining how successful your business will be during this COVID-19 pandemic. A projection helps you maintain the relationships you have with loyal customers. It prevents the many problems resulting from a lack of cash. Here's everything you need to know about this process and how it can benefit you.
What is a Cash Flow Projection?
A cash flow projection estimates how much revenue you expect to come into your business and how much will flow out in expenses. The majority of forecasts typically cover a period of a year. However, you can create weekly, monthly, and semi-annual projections depending on your specific needs.
Cash Flow Projection Advantages
A cash flow projection can provide several key advantages for your business. It can help predict cash flow shortages and determine if expenses need to be cut. The projection allows you to compare income and expenses over different periods to help you make predictions on what you may face in upcoming months. It can also prove your ability to repay loans on time to lenders.
Cash Flow Projection Steps
- Are you ready to create a six-month cash flow projection for your business?
- Start with a spreadsheet consisting of several columns. You'll want to create sections that include your opening balance, cash in, cash out, uses for the cash, cash flow total for the period, and the closing balance.
- Next, collect past reports of the income and expenses of your business from your accountant.
- Calculate your business' cash for the beginning of the current period. To do this, subtract the costs from the income of the previous period.
- Estimate how much cash you expect to come in for the new period. Look at trends from previous periods to get an idea. Estimate the total business expenses for the new period and subtract this amount from your expected income. Once you've calculated your overall cash flow, add this amount as your closing balance. This amount will also be your starting balance for the next period.
Cash Flow Projection Reviews
It's beneficial to review your cash flow projection regularly to see where your business stands financially. You may spot flaws or uncover issues to address. To help maintain accuracy, consider the variable expenses in your business, such as peak season sales and months with extra employee paychecks. If you're struggling with cash flow projection accuracy, you may want to consider hiring a certified public accountant that can keep track of this data.
Cash Flow Projection Management Solutions
Building a six-month cash flow projection is crucial for the operational and financial success of a business. This financial forecasting can help business owners save money and increase their revenues. Proactive planning helps your business stay on track with its strategic goals in any economic environment.
For assistance in creating a six-month cash flow projection, contact Myrick CPA today. As planners, we are here to assist you in navigating simple solutions.
Stay safe, stay well, and stay tuned,
Charles and the Myrick CPA Team
Charles P Myrick CPA, Washington DC tax preparation firm, specializes in accounting services for small business start ups and entrepreneurs. If you are a new entrepreneur, give us a call. We invite you to learn more about the small business accounting services that are available: (202) 789-8898.